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Level 2
posted Mar 17, 2025 8:36:23 AM

When to file taxes on sale of foreign property?

Greetings. I appreciate advice on the following:

  • Sold commercial property in Portugal in June 2024
  • Portuguese 2024 tax window is between April 1 and end of June 2025
  • A Portuguese accountant has calculated what I owe from this sale (26% of capital gains) and informed me that these only need to be paid by December 2026. Government allows for 30 months to find another investment and use it toward lowering capital gains on my June 2024 sale
  • Over the past month the US dollar has taken a serious hit vis a vis the Euro, and ideally I would wait before paying my Portuguese taxes owed. Note, I understand there is no guarantee that the dollar will strengthen in the short term, but I would like to benefit from the Portuguese government's extension

I am not sure of the options available to me in terms of filing my US taxes. For instance, if I pay capital gains taxes in Portugal later in 2025 and only file taxes in Portugal in April 2026, insofar as my US taxes:

  1. Do I still need to include the sale in my 2024 taxes (i.e., this tax season)? And if so, how do I handle that although I know how much I owe (i.e., 26%), I have not yet paid it to the Portuguese government? Or
  2. Do I file my 2024 taxes normally (i.e., don't report the sale of foreign property) but include it in my 2025 tax filing (i.e., filed next year)? Or
  3. Something different?

Thank you for your help.

 

PS: calling out to @DaveF1006 who has given great assistance in the past! Thank you.

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3 Replies
Expert Alumni
Mar 17, 2025 10:34:35 AM

You will need to include the sale on your 2024 tax return.  You will not be able to claim the foreign tax credit until you actually pay the tax of you are a cash taxpayer.  If you pay the tax, you can amend your return to claim the foreign tax credit.  

 

Level 2
Mar 20, 2025 5:52:00 AM

Thank you. Unclear what you mean with: "until you actually pay the tax of you are a cash taxpayer"

Expert Alumni
Mar 20, 2025 8:45:53 AM

The IRS defines cash vs accrual and the effect on foreign tax here. It includes:

 

  • A cash basis taxpayer reports income when it is actually received, and reports expenses when they are paid. The majority of people who file individual income tax returns are cash basis taxpayers.
  • Accrual basis taxpayers compute income when they actually earn it or became entitled to it. Their deductions are computed based on when those debts were incurred, but not necessarily paid.

Most individual taxpayers are cash basis taxpayers. Taxpayers on a cash basis may choose to use the accrual method to determine the foreign tax credit. However, once this choice has been made, the taxpayer must use the accrual method for the foreign tax credit on all future tax returns.

 

References:

Cash vs. Accrual Accounting: Which is Best? | QuickBooks

Comparing Cash and Accrual Bases of Accounting | Department of Labor